I only chose this picture because I heard she was an economist

Yesterday’s post on extra charges for the various items a guest requests caused me to ponder on a larger scale.  It is remarkably common to hear guests say, “I could buy that steak/wine/etc at the store for half that much.”  This is the same principle as walking into a car dealership and demanding a price based on the total price of the steel, glass, and plastic contained in the car.  In both cases, the price of production goes far beyond the cost of the raw materials.  Next week, I will be addressing in detail the difference between the actual cost of an item as simple as a burger and also the actual price of production.  When the cost of labor and overhead is factored in, a burger is far less profitable than the average consumer would imagine.

First, it is necessary to establish as a premise that food is a commodity.  A meal is comprised of many components each of which has a finite supply.  There are only so many acres of wheat or corn being produced.  There are also only so much beef, poultry, pork, and seafood being brought to market.  This means that supply is more of less the same and therefore demand is what determines the price restaurants pay.  The commodity we are all most familiar with is oil.  When demand for oil rises worldwide the price rises as well.  This is followed shortly by a rise in the price of gasoline.  We as consumers understand why this affects gas prices, but rarely do we relate it to restaurants.

Read the full post at The Manager’s Office

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